Crest Nicholson poised to agree £720m Bellway takeover bid - but is UK housebuilding competition at risk?
- Amid proposed Crest-Bellway deal, the CMB is probing the Redrow-Barratt deal
Crest Nicholson is set to agree a sweetened £720million all-share takeover deal from larger rival Bellway, should the latter make a firm offer.
The combined group, should the deal go ahead, would be worth around £4billion, joining the likes of FTSE 100-listed heavyweights Barratt, Berkeley, Vistry, Taylor Wimpey and Persimmon in terms of market capitalisation.
The Crest-Bellway deal would concentrate the housebuilding sector into an even smaller handful of very large firms than seen currently.
Big deal: Crest Nicholson has said it may recommend to its shareholders a sweetened all-share takeover deal from Bellway
The Competition and Markets Authority is investigating the proposed £2.5billion acquisition of Redrow by Barratt in order to determine whether it 'may be expected to result in a substantial lessening of competition'.
Speaking to This is Money, Anthony Codling, managing director of equity research at RBC Capital Markets, said: 'My belief is that the Barratt/Redrow deal will lead to more homes and more choice of homes.
'Barratt caters for the lower to mid rungs of the housing ladder and Redrow the mid to upper rungs. Barratt will be able to sell Redrow homes on its sites and Redrow sell Barratt on its sites.
'There is little overlap between the two at the all important local level, so we do not see the risk of less competition and less choice.'
He added: 'Bellway is a smart operator with a track record of delivery, whereas Crest has struggled to exorcise its demons. We believe that Bellway will be able to improve Crest’s performance.
'Bellway is a national housebuilder whereas Crest is focused on the South East, East and Midlands.
'We believe that Bellway will build more homes more quickly on Crest’s land than Crest was able to. This will help address our countries dire shortage of homes.'
Competition issues? The Crest-Bellway deal would, if it goes ahead, concentrate the housebuilding sector into an even smaller handful of very large firms
Under the terms of the latest proposed deal between Crest and Bellway, Crest shareholders would get 0.099 Bellway shares for each Crest share they own and a dividend of 4p per share.
The proposal made on 3 July implies a value of 273p per share and is Bellway's third in the last four months. Its last proposal was worth 253p per share.
Oli Creasey, an analyst at Quilter Cheviot, said: 'While this is an increase in terms of what Crest Nicholson shareholders would receive compared to the previous offer (0.093 shares), the increase in pound sterling terms is marginal given the decline in Bellway’s share price since the first offer was announced in mid-June.'
The companies pointed to the 'compelling strategic and financial rationale' for the combination in a statement, adding it would reinforce Bellway's position in the sector and enable Crest Nicholson shareholders to benefit from the scale of the combined business.
Bellway has until 8 August to make a firm offer or walk away.
He added: 'The merger seems attractive to Crest Nicholson shareholders, who will get a stake in a larger, better run business.
'The merits for Bellway shareholders are a little less clear – they will become owners of a bigger business, and the Crest Nicholson brand is complementary to Bellway’s existing business as it tends to build higher value homes.
'However, it also relies on Bellway’s management getting more from the Crest Nicholson business than current management have – far from a guarantee.'
The Bellway-Crest negotiations underscore consolidation efforts in the housing market amid hopes among housebuilders that the Labour government will spur homebuilding.
Crest shares rose 4.02 per cent or 9.6p to 248.20p on Wednesday, having climbed over 38 per cent in the last year. Bellway shares slipped 0.39 per cent or 10.00p to 2,570.00p.
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